Productivity in Ireland 2022 - 2023

This chapter focuses on the factors that contribute to Gross Value Added (GVA) growth: Capital, Labour and Multifactor Productivity (MFP). Changes in GVA can be measured as the contribution of labour (hours worked), the contribution of capital (capital services) and their combined efficiency of use (MFP). While the contribution of labour is clearly critical to output in the Irish economy, both capital and MFP have been major drivers of GVA growth in recent years. 

Figure 7.1 shows GVA growth for the total economy over the period 2013-2023, broken down into the contributions of labour, capital and MFP growth. GVA decreased by 5.8% in 2023, with negative contributions from capital (-4.0%) and multifactor productivity (-2.2%) offset slightly by a marginal positive contribution from labour (0.5%). In 2021, the contribution of capital was negative for the first time since 2000, as imports of IPP failed to outpace the level of depreciation. This trend continued throughout the subsequent two years, with the contribution of capital to GVA negative and decreasing in 2022 and 2023. The 0.5% contribution of labour to GVA growth constituted a year-on-year drop of nearly 2 percentage points, falling below the pre-pandemic contribution of 1.1% observed in 2019. 

Figure 7.2 presents GVA growth for the Domestic sector from 2013-2023, again broken down into the contributions of labour, capital and multifactor productivity growth. The Domestic sector had GVA growth of 5.8% in 2023. This was largely driven by positive multifactor productivity growth of 4.0% with modest contributions from capital and labour of 0.8% and 1.1%, respectively. Similar to the pattern observed for the Total economy, labour contribution for the Domestic sector fell to levels which were below those seen in the pre-pandemic years. 

GVA growth broken down by factor inputs by sector in 2023 is shown in Figure 7.3. There was significant movement in GVA across the economy in 2023. Electricity, Gas, Steam & Air Conditioning Supply saw extremely strong growth in GVA of 55.8%, driven primarily by significant multifactor productivity growth of 57.9%. Several domestic sectors also saw significant growth in multifactor productivity in 2023, including Water Supply, Sewerage & Waste Management (15.0%), Agriculture, Forestry & Fishing (13.7%), Financial & Insurance Activities (13.6%), and Domestic Manufacturing (10.6%). 

Foreign Manufacturing saw the greatest decline, with GVA falling by 32.7% in 2023. This was driven by a capital contribution of -11.5%, a fall in multifactor productivity of 20.9% and a small labour contribution of -0.2%. Wholesale & Retail Trade also saw a fall in multifactor productivity in 2023 of -7.9%, reflecting the drop in GVA for the sector of 6.3%.

Figure 7.4 compares Irish GVA growth to that of comparable EU economies in 2023. Ireland’s GVA contracted by 16.1% in 2023, a substantially greater decline than any of the other countries shown. The Foreign and Domestic sectors of Ireland showed very different results: Domestic sector GVA had the strongest growth when compared to EU peers, while Foreign sector GVA exhibited the largest contraction. Average growth for the EU was 0.7%, meaning that Domestic Irish GVA growth was more than eight times that of the EU.

Figure 7.5 shows average compound growth rates for a selection of EU countries over the period 2013 to 2023. Ireland’s economy grew marginally faster than any comparable country, with an average GVA growth rate of 8.0% per year. Ireland’s Domestic sector GVA grew on average by 4.1% per year, which was just below the EU average of 4.2% per year and above similar sized EU counterparts such as Denmark, Finland and Sweden. Ireland's Foreign sector GVA grew on average by 14.1% per year from 2013 to 2023, over three times the EU average annual growth rate.